Answers to the European Commission on the ... - Eiopa - Europa

Actuarial function
General principles
A.20 The actuarial function requires an understanding of <strong>the</strong> s<strong>to</strong>chastic
nature of insurance, <strong>the</strong> risks inherent in assets and in <strong>the</strong> use of
statistical models.
A.21 Actuarial methods are used <strong>to</strong> assess risk, determine <strong>the</strong> adequacy of
premiums (tariffs) and establish technical provisions for both life and
non-life insurance. These methods include a detailed understanding of
<strong>the</strong> probabilities of insurance risks, (e.g., mortality, morbidity, claims
frequencies and severities), <strong>the</strong> use of statistical methods, <strong>the</strong> use of
discounted cash flows, understanding and assessment of <strong>the</strong> use of
derivatives and an understanding of volatility and adverse deviation.
A.22 The actuary should make an assessment of:
• <strong>the</strong> overall policy of underwriting;
• <strong>the</strong> claims management procedures;
• <strong>the</strong> overall investment policy and management;
• <strong>the</strong> overall reinsurance and o<strong>the</strong>r risk mitigation policy and
management;
• IT systems
Specific principles for life insurance
A.23 The actuary, taking in<strong>to</strong> account <strong>the</strong> terms and conditions of insurance
contracts as well as <strong>the</strong> investment policy, should give advice on:
• <strong>the</strong> terms and conditions of insurance contracts;
• <strong>the</strong> adequacy and sufficiency of <strong>the</strong> level of premiums <strong>to</strong> be
charged;
• <strong>the</strong> adequacy of technical provisions in sufficient detail for <strong>the</strong>
Board of Direc<strong>to</strong>rs <strong>to</strong> decide where within a range of reasonable
estimates <strong>the</strong> technical provisions should be set and whe<strong>the</strong>r <strong>the</strong>
calculation of <strong>the</strong> solvency position is based on realistic
assumptions;
• <strong>the</strong> adequacy of reinsurance arrangements; and
• <strong>the</strong> determination of <strong>the</strong> allocation of profits, distributions or
bonuses <strong>to</strong> participating policies.
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